Houzz raising $400M at $4B valuation

Not just that -- I was thinking about what "Zenefits for residential housing" would look like, and Houzz is clearly the leader in establishing a platform in that space.

Once you have the hub relationship with homeowners, you can add however many spokes as you please.

Interesting to see the professionals part of the website. I wonder how well it competes with Thumbtack

Huh. I just realized I didn't really know what Houzz was. Not even sure if I still do.

As an interior design enthusiast, I come across Houzz all the time. It's one of my least favourite sites in that regard, after Pinterest. The problem for me is that it mostly serves to obscure. It's full of pictures of furniture and other design objects that are usually impossible to source -- just like Pinterest, which itself is one step down from design blogs that rampantly steal each other's photos without credit. It's so hard to source design. Most of the time, what you come across isn't even a product, it's some concept work by some designer in Spain who has no plans to manufacture whatever it is, or it's a custom job. Or some super high end Italian product with a price that's firmly in the "if you have to ask, you can't afford it" category.

Sure, valuable for inspiration, but annoying if you're looking to buy, say, a modern coat rack. (Which is surprisingly difficult, by the way. The US has still, for the most part, not caught up with modernism when it comes to interior design.)

Houzz does have a shop section, but it's not great. Mostly there's confusion about what mode Houzz is currently in; when landing on Houzz from Google I'm usually unsure if I'm looking at a product page, a lookbook or an ad for some interior decorator.

> Looks like a pretty simple site

If you ignore the fact that it's actually a full e-commerce platform, and ignore the machine vision categorization ("AI") and augmented reality aspects to their product, you also have to realize it's not a site, it's an ad platform that does probably just shy of $1B in annual revenue. Not so simple!

It's also not just some "site" that has a dev team of maintainers. Houzz is a full-on sales and marketing corporation. They'll likely be 2,000 employees soon. Only a small fraction would be software engineers (my guess, probably 70 growing to 100). There are likely a few hundred employees in the sales organization. A sizable marketing team. Maybe 500 account managers. A design team. An operations team. An editorial team. A non-trivial HR and recruiting team. An administrative support team.

At a guess, $400M is probably one year's payroll expenses for them.

I have no affiliation with Houzz and am actually ambivalent about them, FWIW. Just wanted to demonstrate that these things aren't so simple.

Here's why the bubble is all too real. Let's compare Houzz to another company in the housing space with a $4 billion valuation that's not swept up in the tech bubble, US Gypsum. Last year USG, a company that has survived for 116 years, made about $400 million in profit. That's not make believe non-GAAP BS, that's actually profit. I'm not privy to the intimate details about Houzz's financials, however I'd be surprised if they made a tenth of that. The question I ask myself is if Houzz will ever be this profitable, and when. I'd guess no, but I could of course be very wrong.

When the market turns, which it will, profitability is what counts in determining who survives and who doesn't. When we start measuring performance using metrics other than profit, which is quite common now i.e. revenue, non-GAAP profit, users, and so on, we are ignoring what really matters and this allows for situations like the dot com bubble and the current bubble to arise.

These companies are raising cash with ease now, and burning it just as easily. There will be a day, I think sooner than later, when it's not so easy to raise such enormous sums of money. When I see something like Uber losing $3 billion last year, and funds still lining up to invest, I can't help but think that we're in the middle of a bubble. These tech firms are selling hope more than anything else to investors.